Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. 140 Assume that the economy follows the Classical Model assumptions. LRAS 130- a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting an increase in the amount of money in circulation. Properly label this line. 120 110 Carefully follow the instructions above, and only draw the required objects. 100 70- Real GDP (5 trillions) Price lerel

Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. 140 Assume that the economy follows the Classical Model assumptions. LRAS 130- a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting an increase in the amount of money in circulation. Properly label this line. 120 110 Carefully follow the instructions above, and only draw the required objects. 100 70- Real GDP (5 trillions) Price lerel

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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4. Consider the following IS-LM model: Consumption:C = 200 + .25YD Investment : I = 150 + .25Y -1000i Taxes : T = 200 Government Expenditures : G = 250 Demand for Real Money Balances : (M/P)d = 2Y -8000i Money Supply : M/P = 1600 a. Derive the IS relation. (Hint: You want an equation with Y on the left side and everything else on the right.) 9-C-1+G Y= 200 0.25 (Y-200) + 150 0.25 4-1000(1) +250+ Y- 200 0.254-50+1500. 25Y- 1000i+250G 93D550-1000 b. Derive the LM relation. (Hint: Write this equation with i on the left side and everything else on the right.)
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Please explain why the answer is D
Chapter 11: Aggregate Demand I: Building the IS-LM Model Henüz 1 2 3 cevaplanmadı 5,00 üzerinden Question: Which of the following is false? 10 11 12 15 İşaretlenmiş F Soruyu işaretle 19 20 O a. The Quantity theory assumes income level to change and Keynesian model assumes it to be fixed. Uygulamayı bitir ... Kalan süre 0:14:53 O b. The Fisher equation implies that an increase in inflation will also increase nominal interest rate since real interest rate is constant. The Quantity theory assumes real money balances to be constant but the liquidity preference (Keynes) theory assumes it to change. Od. The Quantity theory assumes nominal interest rate to be determined by price level and the liquidity preference (Keynes) theory assumes it to be determined by real interest rate. The liquidity preference (Keynes) theory implies that an increase in nominal interest rate will increase real interest rate since price level is fixed. O e.
8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?
2. Please use a graph to produce aggregate supply in classical model under the assumption of nominal wage or money wage.
1. [IS-LM Model - II] Let the IS equation be given as Y = then A 1-b where 1-b is the marginal propensity to save, g is the investment sensitivity to the interest rate i, and A is an aggregate of exogenous variables. Let the LM equation be Y 9 1-b T Mo 1 +-1, k where k and I are income and interest sensitivity of money demand, respectively and Mo is is the real money balances. If b = 0.7, g = 100, A = 252, k = 0.25,7 = 200, and Mo = 176, (a) Write the IS-LM system in matrix form. (b) Solve for Y and i by matrix inversion. Recall the formula for matrix inversion in the 2 x 2 case discussed in class. (c) Solve for Y and i by Cramer's rule.
1) Inflation in Theoretica is currently below the target range of its central bank. What does this tell you regarding Theoretica’s likely output gap? Illustrate it using an AS-AD diagram, and briefly explain your diagram 2) Your mother states that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money. Do you agree or disagree with her statement? Provide two reasonings to justify your answer. 3) Is either helicopter money or quantitative easing preferred in times of severe recessions in order to boost economic activity? Explain your reasoning.
Initially, an economy is in long-run equilibrium with a real GDP of $4 trillion. Suppose that the productive capacity of the economy increases by 50% and at the same time, the money supply increases at the same rate. 1.) Using the line drawing tool (possibly twice), show the effect on the economy. Properly label your new line. 2.) Using the point drawing tool, show the new equilibrium price level and output. Label the point E₂ Carefully follow the instructions above, and only draw the required objects. Price Level 220 200 180- 160- 140 120- 100- 80- 60- 40 LRAS, AD₁ 8 Real GDP per year ($ trillions)
"that lowering interest rates in the recessionary COVID-19 period is good policy because it will guarantee consumers will spend more as it is cheaper to borrow money" do you agree or disagree with this statement? provide two reasons why?
Explain if, and why, you agree, or do not agree, with the following statement [when answering, assume that, in each time period, the economy is described by a static IS-LM model, with consumption and investment depending on contemporaneous variables only]:"In a closed economy wherke the central bank chooses the money supply, the prices of stocks at time t, €Qt, will unambiguously rise if, from time t onwards, government purchases of goods and services, G, go up".
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